Iraq to Challenge Saudi Arabia for the Position of World's Largest Oil Producer, if...

Baghdad is coming of age in its own backyard with the awarding of contracts for developing its oil reserves while taking care of its assets as evident from its tough stand with Tehran.

The country’s Oil Minister recently announced that their oil capacity could reach 12 million barrels per day (bpd) in six years. Hussein al-Shahristani told journalists in Baghdad that oil production would not necessarily operate at full capacity, but would take into account demand. Saudi Arabia, the world's largest oil exporter, has a capacity of 12.5m bpd and has predicted it can go up to 15 bpd.

Shahristani called the result of Iraq's second international oil auction on December 11-12, since 2003 a "major success." "It is a big achievement for Iraq to win such contracts at the current prices," he said.

CONTRACTS GALORE

The latest in the series of such contracts is a preliminary deal with an oil consortium led by European energy giant Royal Dutch Shell PLC and Malaysia's state-run Petronas to develop one of its most prized oil fields.

The Shell-Petronas consortium proposed to raise the crude oil output from the current level of about 45,900 bpd to 1.8 million bpd with a remuneration fee of $1.39 for each barrel produced.

The two companies won the right to develop the oil field with estimated reserves of 12.5 billion barrels during the latest auction, which awarded seven contracts to international oil firms.

Earlier, a joint bid by Russian and Norwegian oil firms won the contract for the "supergiant" West Qurna field, said to have reserves of 13 billion barrels.

Lukoil and Statoil will get $1.15 a barrel and will work to raise output from West Qurna Phase 2, in the Basra region, to 1.8 million bpd.

In June, a winning bid to develop another Iraqi field received $2 a barrel. Rights for the eastern Halfaya field, with 4.1 billion barrels of reserves, went to a consortium led by the Chinese state oil company, CNPC.

The Iraqi Ministry of Oil terms stipulate 25% of the participating interests in all licenses to be held by the Iraqi State.

TOP POSITION

According to oil pundits, Iraq would overtake Russia and challenge Saudi Arabia for the position of the world’s largest oil producer if a daily total of 12 million barrels was achieved.

With Iraq's proven reserves now standing at 115 billion barrels, below Iran's 137 billion and Saudi Arabia's 264 billion, the experts point that Iraq's data dates from the 1970s, before improvements in technology transformed the industry.

According to Shahristani Iraq has "scores" of oilfields, including "supergiants" - fields of 5 billion barrels or more - to offer international companies in the future.

SECURITY FACTOR

The Iraqi oil minister told the state television that, "The terrorists tried to send a message to the companies through the bombings ... that Iraq is unstable and investment will be overshadowed by risks," he added, "but this message was not delivered and never deceived them. They came and submitted competitive offers that surprised the global oil industry.”

The security situation in the country did cast a shadow on the process as the East Baghdad field, part of which lies under the city's Sadr City area, and another in the Diyala province attracted no bids.

A European oil guru told Oilprice.com, on condition of anonymity, “Iraq still has a problem with security. Earlier the Americans hand over the reigns to Iraqis, the better it would be for us to see the real picture of security,” adding, “If Iraqis want to reap the benefits of their natural resources, they must be able to guard them and upgrade their legal regulations to international standards.”

IRANIAN BORDER

On the reported skirmishes with Iran over disputed oil fields, it seems Iraq is holding ground and Iranians have agreed to come to negotiating table to sort out the differences.

According to local media reports, Iran and Iraq plan to set up an arbitration commission to clear up the misunderstanding over the borderline well.

Iranian media reported that Iranian Foreign Minister Manouchehr Mottaki and his Iraqi counterpart Hoshyar Zebari decided in a latest telephone conversation that setting up such a commission would be the best way to approach the problem.

Earlier Iran's armed forces had rejected claims that they have taken control of an oil well within Iraqi borders, stressing that the well in question is on Iranian soil.

"Based on internationally recognized borders, the disputed oil well belongs to Iran as it is on Iranian soil," a spokesman for Iran's Armed Forces Headquarters was quoted by Iranian Press TV.

"As stressed in the statement issued by the Islamic Republic Armed Forces Headquarters, Iranian troops have not crossed over into Iraq," he added.

A day earlier, Iraq's Southern Oil Company (SOC) released a statement claiming that Iranian forces had entered Iraq's oil field, taken control of well No. 4 and raised the Islamic Republic's flag at the site.